CAPITAL MARKETS AND FOREX OVERVIEW

SEPTEMBER 2016 REPORT

TREASURY RATE ANALYSIS

For the period ended August 2016, yields on the 91- and the 182- day bills were 22.87% and 24.71%, respectively.
Rates on the 1-year note and 2-year bonds fell by 50bps and 25bps to 2 were unchanged at 23.50% and 24.50% respectively.
Over the review period of September 2016, whiles treasury rates on the 91-day bill remained flat, the 182-day bill inched down by a base point to close at 22.80% and 24.70% respectively.
Yields on the 1 and 2-year notes were unchanged.
Fixed income remains a more attractive investment for investors. Longer dated treasuries are still recommended to investors as they post attractive yields.

YEAR-TO-DATE SUMMARY

	91-Day	182-Day	1-Yr Note	2-Yr Note
CURRENT	22.80%	24.60%	23.00%	24.25%
HIGH	22.90%	24.73%	24.00%	24.25%
LOW	22.51%	24.19%	23.00%	23.00%
AVERAGE	22.74%	24.58%	23.03%	23.91%
MEDIAN	22.78%	24.62%	23.00%	24.05%

2016 HALF YEAR TREND

INFLATION RATE ANALYSIS

YEAR ON YEAR INFLATION TREND

The year-on-year inflation rate for the month of August 2016 was 16.9%, up from 16.7% in July 2016. The monthly change rate for the month of August 2016 was also put at -0.6% compared to the 0.9% recorded in July.
The food and non-food alcoholic beverages group recorded a year-on-year inflation rate of 8.5 percent, representing a 0.1 percentage point lower than the rate recorded in July 2016.
Six groups of the food and non-alcoholic beverages group recorded inflation rate higher than the group’s average rate of 8.5%.
The non-food group recorded a year-on-year inflation rate of 21.5% in August 2016, compared to the 21.2% in July 2016. Education sector recorded the highest inflation rate of 34.1%, followed by Housing, Water, Electricity, Gas and other fuels with a 28.1%.
And at the regional level, the Ashanti and Greater Accra regions recorded inflation rates above the national average of 16.9%.

NB: As of the release of this report, the inflation figures for September 2016 had not been published by the GSS

MONETARY POLICY RATE

The Monetary Policy Committee held its 72nd sitting and maintained the Policy Rate at 26.0%. It observed the risks to inflation and growth as balanced.
The Real Composite Index of Economic Activity (CIEA) for July reflected an increased pace of growth relative to same period in 2015. The major drivers for the growth in economic activity were port activities and industrial consumption of electricity. Business and consumer sentiments on the economy were however mixed with some expressing optimism.
Growth conditions are expected to improve over the medium-term supported by the sustained improvement in the power sector and increased oil and gas production.
However, the headwinds to growth include tighter fiscal consolidation, declining private sector credit and delayed recovery in commodity prices.
The major risks to the fiscal outlook include uncertainties inthe international oil market, continued weakness in tax revenue mobilisation and wage pressures.
The next MPC meeting is scheduled for November 18, 2016.

POLICY RATE TREND

GSE ANALYSIS

The GSE-CI declined by 1.7% for the month of September 2016.
Year-to-date, over 11% of value has been lost by the GSE-CI.
The heightened inflationary environment and current economic environment continues to be of concern to us. We continue to remain on the sidelines on the Ghanaian Equity Market. Selective investor interest in the equity markets is being driven by value hunters who believe some valuations are attractive and make for a good entry point. Although, certain valuations may look appealing from a relative perspective, we do not think they are supported by solid fundamentals and as such we will not recommend any names at this time.
We would not recommend a return to Ghanaian equities in the near-term as the general economic environment and rapidly declining local currency make it highly unappealing.

GSE-CI RETURN TREND

FOREX ANALYSIS


Monthly		Year To Date
CURRENCY	%CHANGE	%CHANGE	AVERAGE	HIGH	LOW	MEDIAN
AUD	3.0%	4.6%	2.8526	3.0373	2.6399	2.8546
CFA	1.2%	3.7%	0.0066	0.0070	0.0063	0.0066
CHF	2.8%	4.8%	3.9596	4.1974	3.8027	3.9487
EUR	1.2%	4.8%	4.3393	4.6036	4.1249	4.3446
GBP	-0.4%	-6.8%	5.5736	5.9565	5.2400	5.5669
JPY	5.3%	19.7%	0.0349	0.0388	0.0320	0.0348
USD	1.8%	2.6%	3.8881	4.1600	3.7949	3.8649
YUAN	0.8%	0.5%	0.5948	0.6298	0.5759	0.5925

Source: Oanda.com. Average daily midpoint exchange rate

Over the reporting month of July 2016, the Ghana Cedi appreciated against the British Pound and Euro. It appreciated 6.3% and 0.3% against the British Pound and Euro respectively. Year to date, the Ghana Cedi has gained 8.2% of its value against the British Pound Sterling.
It depreciated against the Australian Dollar, the Japanese Yen, the US Dollar and the Chinese Yuan. It however remained flat against the CFA and Swiss Franc for the period under review.
Year-to-date, the Cedi has depreciated against all the reported currencies but the Pounds Sterling with the most significant being the JPY(20.6%), AUD(6.8%), and CHF(5.7%).
We anticipate the tight policy stance, inflows from the cocoa pre-export finance facility and expected issuance of the Eurobond in the last quarter would boost reserves, improve liquidity on the foreign exchange market.

Disclaimer

Union Capital Limited has prepared this material. Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn.

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